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  4. > Wines & Spirits: Anti-Counterfeit, Brand Protection & Product Authentication

PRODUCT CRIME – WINES & SPIRITS

Wines & spirits are:
- Widely counterfeited
- Subjected to various forms of tampering, refilling and / or dilution
- Targeted by smugglers (particularly between countries with contrasting high & low excise tax
regimes).

Counterfeiting operations in particular can be scaled up and can be highly lucrative and are known to
be often linked to organised crime networks and in some cases terrorist groups.

LOOK-ALIKE COUNTERFEITS VERSUS REFILLING OF GENUINE EMPTY BOTTLES
The problem of copy or look-alike products is widespread for spirits and also wines. Such copy and
Look-alike products aim to perform the same function as a genuine product but are produced by an
independent manufacturer under a similar name, and nearly always are of inferior quality.

The products are sold in markets where consumers are vaguely familiar with Trade Marks and
international brands but often have little comprehension of English - All major spirits brands are
vulnerable to such attacks. Nonetheless it is clear that such challenges have by no means deterred
counterfeiters in China.

Unfortunately, no matter how sophisticated the on-bottle devices may be and how many steps are
taken to protect a genuine empty glass bottle to prevent illicit copying or reproduction of a particular
glass bottle, the widespread practice of obtaining empty genuine bottles and refilling them tends to
subvert this type of approach brand protection. This practice is particularly prevalent in China and
needs to be factored in to any brand protection strategy.

Counterfeiters are generally compelled to rely on either:
- Look-alike counterfeits using standard bottles which can only approximate to the appearance
of custom made bottle
- Collecting and re-filling empty used bespoke proprietary bottles and this generally means that
the original genuine label is still attached to the bottle.

All major wines & spirits brands are vulnerable to such attacks and both approaches are widely used
by criminals today.

Table Of Contents

Wines and Spirits: Anti-Counterfeit, Brand Protection and Product Authentication
1 INTRODUCTION .. 8
1.1 TYPES OF PRODUCT CRIME - WINES and SPIRITS . 8
1.2 CATEGORY DEFINITIONS 8
1.3 SOME MAJOR INITIATIVES IN BRAND PROTECTION . 9
1.3.1 The Anti-counterfeiting Trade Agreement (ACTA) 9
1.3.2 Interface Public Members (IPM) - WCO / GS1 - A Tool for Customs .... 10
1.3.2.1 New Mobile IPM Launched in 2013 . 11
1.3.2.2 WCO Operations - Raids and Seizures .. 11
1.4 KEY DRIVERS - PRODUCT CRIME - WINES and SPIRITS 13
1.4.1 China and the Internet 13
1.4.1.1 The Economic Boom of China .... 13
1.4.1.2 The Rapid Growth of the Internet .... 13
1.4.2 Identification of High Risk Product Categories .... 13
1.4.2.1 Premium Pricing / Strong Brands .... 14
1.4.2.2 High levels of Taxation 14
1.4.2.3 Powerful Motivators for Counterfeiters . 14
2 TAX and THE ROLE OF GOVERNMENT . 16
2.1 UNRECORDED and ILLICIT ALCOHOL .. 16
2.1.1 Non-commercial Alcohol ... 16
2.1.2 Unrecorded Consumption - Definition, Categories and Market Sizing .. 17
2.2 SOME PERSPECTIVES ON TAXING WINES and SPIRITS . 19
2.2.1 Unintended Consequences of High Taxes on Alcoholic Drinks ... 20
2.2.2 Tax Differentials between Countries Fuels Product Crime . 20
2.2.3 Smuggling and Counterfeiting within the EU . 21
2.2.4 Case Study - Alcohol Smuggling between States in India . 21
2.2.5 Policy Considerations - Impact on Misuse and Problem Behaviour 22
2.3 EXCISE TAXES ON ALCOHOL . 23
2.3.1 Excise Tax by Country . 23
2.3.2 Alcohol Excise Tax Rates - By Country - World . 24
2.3.3 Alcohol Excise Tax Rates - By State - US 26
2.4 DANGER TO HUMAN HEALTH . 27
2.5 EXCISE TAX STAMPS - ALCOHOL .... 28
2.5.1 Case Study - OpSec - Tax Stamp Security and Authentication .. 31
2.5.2 Case Study - SICPAtraceâ„¢ - Tax Stamp Security and Authentication 33
3 WINES . 36
3.1 WINES - TRENDS .. 36
3.1.1 Wines - Key Trends 36
3.1.2 Wines - Regional Trends .. 36
3.1.2.1 Old World versus New World Wines .... 36
3.1.2.2 Old World Wines (Europe) .... 38
3.1.2.3 New World Wines (US, Chile, Argentina, Australia, South Africa, Asia) . 38
3.1.2.4 Champagne versus Other Sparkling Wines ... 40
3.1.3 The Wine Market in China - Has Seen Rapid Growth .. 41
3.1.4 Impact of Tax Changes in Asia - Wines and Spirits .... 41
3.1.4.1 China and Hong Kong - Tax Implications 41
3.1.4.2 Fine Wine Auctions in Hong Kong ... 42
3.1.5 Chinese Investments in French Vineyards 42
3.1.6 The Wine Market in India - Potential for Growth . 44
3.2 PRODUCT CRIME - WINES .. 45
3.2.1 Counterfeit Wines - A Segmentation ... 45
3.2.2 Case Study - Red Bicyclette Brand - Ernest and Julio Gallo 47
3.2.3 Case Study - Mis-Labelled Italian Wines - Tuscany's Montalcino 48
3.2.4 Case Study - Counterfeit Wines in the UK - Jacob's Creek and Other Brands .. 50
3.2.5 Examples of Counterfeit Corks, Capsules and Labels - Collectible Fine Wines . 53
3.2.6 Case Study - US Chef Faces Lawsuit - Sale of Allegedly Counterfeit Fine Wine .... 57
3.2.7 Authentication of Fine Wines - Special Challenges .. 57
3.2.8 China - Counterfeit Wine - A Special Case .... 58
3.2.8.1 The Fine Wine Empty Bottle Trade in China .. 58
3.2.8.2 Case Study - A Visit to a Chinese Winery was Eye-Opening . 60
3.2.8.3 Defensive Registration of a Brand Mark in China 60
3.2.8.4 Case Study - Australian Wine Brand Penfolds - Counterfeit Attacks in China . 61
3.2.8.5 Online Counterfeit Wine Sales in China .... 62
3.3 BRAND PROTECTION - WINES .... 64
3.3.1 The More Traditional Approach to Brand Protection of Wines 64
3.3.2 Some Leading Brand Protection Solution Providers - Wines . 66
3.3.3 Case Study - Rioja Wine ... 67
3.3.3.1 Wine Labels with Generic Hologram Denoting Region of Origin - Rioja . 69
3.3.3.2 Spanish Wine with Scrambled Indicia Code Label ... 70
3.3.3.3 Case Study - Promotion and security of Spanish Wines - CTOV 70
3.3.3.4 EU Systems for Geographical Indication and Traditional Speciality .. 71
3.3.4 Case Study - Opus One - US 72
3.3.5 Case Study - Shala One - Thai Wine with a Resemblance to Opus One Label ... 74
3.3.6 Case Study - Chateau Margaux and Chateau Lafite- Multiple Security Devices 75
3.3.7 Case Study - BubbleTagâ„¢ and Other Devices from Prooftag ... 77
3.3.8 Case History - Kodak Helps Napa Valley Wineries Fight Wine Fraud .. 78
3.3.9 Dispute Goes Legal - Mr. Koch (Collector) vs. Mr. Kurniawan (Counterfeiter) 80
3.3.10 The Mr. Koch Approach to Brand Protection - Fine Wines 81
4 SPIRITS ... 82
4.1 SPIRITS - TRENDS 82
4.1.1 Spirits - Key Trends 82
4.1.1.1 Premiumisation in the Spirits Sector .... 82
4.1.1.2 Proliferation of Flavour Variants in Spirits - Vodka and Whiskey .... 84
4.1.1.3 New Entrants and More Obscure Spirits Brands - Niche Appeal 86
4.1.1.4 Implications of Key Trends for Counterfeiting of Spirits . 88
4.1.2 Spirits - Regional Trends .. 88
4.1.2.1 Western Markets - North America and Europe . 88
4.1.2.2 Emerging Markets .. 88
4.1.2.3 Case Study - Diageo Asia Investment in Spirits Brand - Some Dangers .... 89
4.2 PRODUCT CRIME SPIRITS.. 90
4.2.1 Counterfeit Spirits Manufactured by Criminals Hurts and Kills People in the UK 90
4.2.2 Case Study - Bootleg Alcohol - From Criminal Manufacture to Poor Students .... 90
4.2.3 Case Study - Counterfeit Spirits in the UK - A Steady Stream over the Years .... 93
4.2.4 China - Counterfeit Spirits - A Special Case . 97
4.2.4.1 Crackdown on Multiple Luxury Product ‘Gifting' in China ... 98
4.2.4.2 Protection for Chinese Brands in China .... 99
4.2.5 Russia - Counterfeit Spirits - A Special Case .... 99
4.2.5.1 Vodka in Russia ... 101
4.2.5.2 Counterfeit Whiskey in Russia . 101
4.2.5.3 Price Control Measures on Alcohol in Russia ... 101
4.2.6 India - Counterfeit Spirits - A Special Case . 103
4.2.7 Case Study - Taiwan Seizures - Counterfeit Wines Spirits .. 104
4.3 BRAND PROTECTION - SPIRITS 105
4.3.1 Ballantines Whisky with Tamper evident / Holographic Shrink Sleeve 105
4.3.2 Hologram Industries - Diagram®Fermer - Security Labels for Spirits .. 106
4.3.3 Molecular Micro-Taggants - Spirits .... 107
4.3.4 Case Study - Wu Liang Ye White Spirit - Multiple Brand Protection Features ... 108
4.3.5 The Scotch Whisky Association (SWA) - Anti Counterfeit Activities .... 109
4.3.5.1 Protection as a Geographical Indication (GI) 110
4.3.5.2 Brand Abuse by Subtle or Oblique References of Scottish Origin ... 111
4.3.5.3 Counterfeit Scotch Whiskey Made in Europe - On the Increase 111
4.3.6 International Federation of Spirits Producers - IFSP .. 112
4.3.7 Operation Opson - Europol / Interpol -$ Millions Seized . 113
5 SUPPLY SIDE INDUSTRY STRUCTURE 115
5.1 MARKET REACH OF BRANDS - WINES VERSUS SPIRITS ... 115
5.2 LEADING COMPANIES - WINES and SPIRITS ... 116
5.2.1 Structure of the Wine Industry .. 116
5.2.2 Structure of the Spirits Industry 118
5.2.3 Leading Wine Companies - World . 119
5.2.4 Leading Spirits Companies - World .... 120
APPENDIX - Leading Brands and Brand Owners - Wines and Spirits 123
6 A STRATEGIC APPROACH TO BRAND PROTECTION .. 131
6.1 THE PATH TO BECOMING A PROVIDER OF INTEGRATED SOLUTIONS . 131
6.1.1 Integrated Brand Protection Solutions 131
6.1.2 Levels of Defence - 1st, 2ndand 3rd .... 132
6.1.3 The Layered Approach for Enhanced Security .. 133
6.1.4 Major Types of Security Solutionand Selection Criteria .. 134
6.2 THE IMPORTANCE OF PACKAGING .... 136
6.2.1 Central Role for Packaging / Label Converters in Creating Integrated Solutions .... 136
6.2.2 Packaging Design can Provide Additional Security 137
7 SMART PHONE AUTHENTICATION - WINES and SPIRITS ... 138
7.1 NEW GENERATION RETAIL TECHNOLOGY .... 138
7.2 ADVANTAGES OF SMART PHONE READABLE CODES ... 138
7.3 ADDRESSING THE EMPTY BOTTLE REFILLING PROBLEM WITH SMART PHONES 139
7.4 OVERVIEW - SMART PHONE ENABLED AUTHENTICATION . 139
7.5 SELECTED PROVIDERS - SMART PHONE ENABLED BRAND PROTECTION ... 143
7.5.1.1 Digimarc Discoverâ„¢ .. 144
7.5.1.2 DuPont Authentication Izon® ... 145
7.5.1.3 GSSC Security Indicia - Digital Watermarking .. 148
7.5.1.4 InkSure / Spectra Systems - Holograms with Smart Phones 150
7.5.1.5 Other Smart Phone Enabled Brand Protection Technologies .... 152
8 CLOSURES, CORKS, CAPSULES and SHRINK NECK SLEEVES .... 153
8.1.1 Characteristics of Packaging - Wines and Spirits . 153
8.1.2 Structural Packaging Formats - Wines and Spirits 154
8.1.3 Multiple Security Solutions - Wines and Spirits .... 155
8.2 CLOSURES and CORKS - WINES and SPIRITS .... 156
8.2.1 Injection Moulded and Metal Closures - Wines and Spirits 156
8.2.1.1 Case Study - Amcor . 157
8.2.1.2 Case Study - Guala Closures .. 160
8.2.1.3 Premium closures - Spirits .. 163
8.2.2 Corks - Natural and Synthetic . 164
8.2.2.1 Corks - Natural versus Synthetics . 165
8.2.2.2 Corks are Central to Authentication of High-End Wines ... 167
8.2.2.3 Case Study - Amorim .... 168
8.2.2.4 Case Study - Nomacorc - Synthetic Corks . 168
8.2.2.5 Case Study - Lafitte Cork and Capsule ... 169
8.2.2.6 Laser Etching Marking of Wine Corks 172
8.3 SHRINK SLEEVES and CAPSULES - WINES and SPIRITS .. 173
8.3.1 Shrink Sleeves . 173
8.3.2 Capsules 174
9 GLASS BOTTLES - WINES and SPIRITS .. 175
9.1 ECONOMICS OF GLASS BOTTLE MANUFACTURE 175
9.2 REFILLING GENUINE EMPTY BOTTLES OR MAKE NEW FAKE BOTTLES .... 177
9.2.1 Copy and Look-alike Products .. 177
9.3 HIGH TECH TESTING TECHNIQUES FOR GLASS BOTTLES 178
9.3.1 Centre d'Etudes Nucleaires de Bordeaux Gradignan (CENBG) Laboratory .. 178
9.3.2 The Isotope Cesium-137 Test .. 179
9.4 EXISTING MOULDED BOTTLE CODES 180
9.4.1 How to Read Moulded Glass Bottle Codes from O-I (Owens IIlinois) .. 181
9.5 UNIQUE CODES FOR INDIVIDUAL BOTTLES 182
9.5.1 Laser Etched Coding / Marking Solutions - Glass Bottles .... 182
9.5.2 Case Study - Domino Laser Etching - Château Cheval Blanc .. 184
9.5.3 Traceability and Unique ID Marking - Glass Bottles ... 187
9.6 PERSONALISATION OF BOTTLES - COLOURS, ENGRAVING, INSERTS 188
10 MARKET SIZING - WINES and SPIRITS .... 192
10.1 EVOLUTION OF MARKET SIZE - WINES and SPIRITS 192
10.1.1 Evolution of Market Size by Volume and Value - Wines and Spirits . 192
10.1.2 Estimated Global Bottle Volumes ... 193
10.1.3 Breakdown by Type of Closure / Cork . 194
10.1.4 Global Breakdown - Wines by Product Types ... 196
10.1.5 Global Breakdown - Spirits by Product Types ... 196
10.1.6 Global Breakdown - Wines and Spirits by Region 197
10.1.7 Wine Sales by Selected Famous Wine Growing Region in 2013 .... 197
10.1.8 Wines - Annual Consumption by Country - Top 10 Ranking . 198
10.1.9 Spirits - Annual Consumption by Country - Top 10 Ranking . 199
10.1.10 Per Capita Consumption - Wines and Spirits ... 200
10.2 GLOBAL FINANCIAL LOSSES - COUNTERFEITING and PIRACY .. 202
10.3 ILLICIT ALCOHOL and COUNTERFEIT WINES and SPIRITS .... 204
10.3.1 Counterfeit Wines and Spirits - Branded, Bottled and Traded . 204
10.3.2 Counterfeit Wines and Spirits - China ..... 205
10.3.3 Financial Losses Due To Counterfeiting - Wines and Spirits .... 206
10.4 BRAND PROTECTION SOLUTIONS . 207
10.4.1 Overview of the Market for Brand Protection Solutions - All Verticals in 2014.... 207
10.4.2 Financial Losses from Smuggling - Wines and Spirits .... 209
10.4.2.1 Alcohol Smuggling Today .... 209
10.4.2.2 Tax Differentials between Countries / States - An Important Driver of Smuggling ... 209
10.4.2.3 Financial Losses - Uncollected Tax Revenues - Selected Countries .. 210
10.4.3 Case Study - Excise Tax in the UK .... 211
APPENDIX - WINE STATISTICS (Production, Consumption, Acreage, Per Capita) . 213
11 NOTES ON ANCILLARY SERVICES .. 217

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